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Complexities of Offshore Outsourcing

The issue of jobs going abroad may not be so black-and-white.

The practice involving U.S.-based companies sending some of their work abroad has many impassioned opponents. Some critics reasonably question the bias of various information sources, such as when consulting companies that help businesses develop offshore outsourcing plans release reports supporting the practice. If a firm is in the business of helping others send jobs overseas, it's likely to encourage companies to do so.

A recent example is accounting and consulting firm Deloitte & Touche, which released the results of a survey finding that the offshore outsourcing of customer service and information technology jobs, engaged in by the likes of Morgan Stanley(NYSE:MWD), J.P. Morgan Chase(NYSE:JPM), General Electric(NYSE:GE), Citigroup(NYSE:C), and Goldman Sachs(NYSE:GS), saves companies big bucks and is a way for them to stay competitive. (Mark Mahorney examined these economics of outsourcing in more detail.) D&T estimates that each of the 100 biggest financial enterprises will soon be saving an average of about $700 million in operating costs, thanks to outsourcing.

That's not chump change, but it's not necessarily the right thing to do. Consider computer giant Dell(NASDAQ:DELL) and Wall Street's Lehman Brothers(NYSE:LEH), for example. Both reined in their outsourcing activities, due to the public's outcry against the practice.

It's a complex issue. Supporters argue that if more American jobs remain here, including manufacturing jobs, Americans will face higher prices for products and services, since American workers are paid much more than those in developing nations and other countries. They make a good point that firms need to do what's best for shareholders, which means maximizing profits.

But detractors' arguments also have merit, noting that many Americans are losing valuable jobs and not easily finding replacement work. They also say that if Americans are turned off by offshoring, then companies associated with it will lose favor and possibly business.

Another argument against it relates to risk: If countries that provide outsourcing services, such as India, the Philippines, and Malaysia, suffer major political unrest, business activities could be affected. And if American companies send technical and customer information for processing overseas, they could be handing it over to would-be competitors or troublemakers in other nations. Finally, if it reaches the point where certain jobs, such as important technology-related ones, are mainly done abroad, then U.S. workers will lose that expertise, which is critical for job advancement, competitiveness, and innovation.

These competing arguments make it clear that this is not a simple issue -- and that perhaps companies should not base the decision on whether to offshore jobs simply on expected cost savings. Instead, many other factors should be considered.

LongtimeFoolcontributorSelena Maranjiandoes not own shares of any companies mentioned in this article.

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Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter... Follow @SelenaMaranjian